‘Account-based’ plans are bending the health care cost curve down

Account-based health plans have grown significantly in the private sector in the past 10 years and studies show they have helped drive down costs. The public sector, however, has been slow to pick up these programs, with the most notable exception being Indiana.

While these health plans won’t solve every concern related to health care delivery, they make a big contribution to solving the biggest problem of the day—controlling costs—and they literally change the way the customer views health care.

Account-based health plans are insurance plans with higher deductibles than most traditional plans (e.g., $1,000 or more) that are paired with a tax-preferred account for out-of-pocket health care expenses such as a Health Savings Account (HSA) or Health Reimbursement Account (HRA). Like other types of insurance (e.g., auto, home, etc.), raising one’s policy deductible typically lowers one’s premium but exposes the individual to higher out-of-pocket expense at the time of a claim.

Tax-free savings are portable

However, the money in HSA or HRA accounts comes tax-free from employers, just like the insurance premiums for coverage received from the company. But in the case of an HSA (and with some HRAs), unspent funds in the account automatically accumulate each year and are completely portable for the employee.

Companies with at least half of their workers enrolled in an account-based health plan report that their per-employee costs are over $1,000 lower than companies without an account-based health plan, according to Towers Watson and the National Business Group on Health.

Similarly, Aetna reported late last year that employers who switched to account-based health plans as their only plan option had saved $21.8 million per 10,000 members over the past five years. Earlier this year, Cigna published a study concluding that employers can save an average of $9,700 per employee over five years by switching to account-based health plans. This is hard evidence for “bending the cost curve” that is so elusive for the rest of our nation’s health care system.

This potential for reducing health care spending was recently confirmed when researchers at the RAND Corporation concluded that if enrollment in account-based health plans grows to represent half of all employer-sponsored insurance, U.S. health care spending could drop by $57 billion annually. If all of these people enroll in HSA plans, the annual savings would be as high as $73.6 billion.

Total enrollment doubled

With savings like these, the growth in account-based health plan enrollment should surprise no one. In fact, total enrollment has nearly doubled in the past two years, from 15 percent in 2010 to 27 percent in 2012. Although estimates of enrollment vary (from 21 million to as high as 33 million), the number of Americans covered by HSA-based plans is well known—approximately 13.5 million, as recently reported by America’s Health Insurance Plans. There is no reliable survey of HRA-based plans.

The consulting firm Towers Watson projects that 70 percent of employers will have implemented account-based health plans by 2013, up from 60 percent this year. Twelve percent of employers now offer “total replacement” plans—where account-based health plans are the only option offered to employees—up from 7.6 percent in 2010.

While private employers are taking action and moving to account-based health plans, state employers appear to be lagging. Last year, Arizona, Louisiana, Minnesota, Utah and West Virginia joined 18 other states that offer an account-based health plan. In all but one of these states, only about two percent of government employees have signed up.

Indiana a shining example

The one exception is Indiana, which has been offering account-based health plans to state employees since 2006. This year, 90 percent of Indiana state workers with its health insurance coverage participate in an account-based health plan. The state says these plans have already reduced the state’s overall health benefit costs by more than 10 percent, and only 2 percent have switched back to a traditional plan.

The evidence also shows that account-based health plans are changing how employees think about their health and are taking action to improve it. This is extremely important as research is increasingly suggesting that lifestyle behaviors account for approximately three-fourths of health care spending in the United States. Fortunately, individuals enrolled in account-based health plans are more likely to talk to their doctor about treatment options and costs, check the price of service before seeking care, and use online tools to manage their health care expenses.

Unfortunately, the health reform law adds unnecessary burdens on these plans that threaten their viability and jeopardizes the most promising strategy for keeping health care costs under control. Without cost control, the promise of affordable coverage will remain elusive for many.